Employment Insurance (EI)

Reasons and decision

Persons in attendance

[1] The Appellant, N. I., was present at the telephone hearing (teleconference) on January 6, 2016.

Introduction

[2] On November 10, 2014, the Appellant made an initial claim for benefits that took effect on October 26, 2014. The Appellant reported having worked for the employer, SSQ Société d’Assurance-vie Inc., from May 22, 2012 to October 22, 2014 (Exhibits GD3-3 to GD3-11).

[3] On May 12, 2015, the Respondent, the Canada Employment Insurance Commission, (the “Commission”), notified the Appellant that he had received a global amount of $17,056.79, consisting of $830.79 as his last week of pay, $649.05 as vacation pay, $2,596.20 as pay in lieu of notice, and $12,980.78 from the settlement agreement reached with his employer. The Commission notified the Appellant that the $17,056.79 he had received was considered income. The sum in question would be deducted from his benefits for the period from October 19, 2014 to January 17, 2015 and an amount of $0.66 would be allocated to his benefits in the week of January 18, 2015 (Exhibits GD3-20 and GD3-21).

[4] On June 9, 2015, the Appellant filed a Request for Reconsideration of an Employment Insurance Decision (Exhibits GD3-24 and GD3-25).

[5] On July 28, 2015, the Commission notified the Appellant that it was upholding the decision in his case of May 12, 2015 regarding the allocation of his earnings (Exhibits GD3‑28 and GD3-29).

[6] On September 1, 2015, the Appellant filed a Notice of Appeal to the Employment Insurance Section of the General Division of the Social Security Tribunal of Canada (the “Tribunal”) (Exhibits GD2-1 to GD2-11).

[7] On September 15, 2015, the Tribunal informed the employer, SSQ Société d’Assurance-vie Inc., that if it wanted to become an “added party” in this case, it would have to file a request to that effect by September 30, 2015 (Exhibits GD5‑1 and GD5‑2).

[8] This appeal was heard by teleconference for the following reasons:

1. This method of proceeding respects the requirement under the Social Security Tribunal Regulations to proceed as informally and quickly as circumstances, fairness and natural justice permit (Exhibits GD1-1 to GD1-4).

Issue

[9] The Tribunal must determine if the monies received by the Appellant constitute earnings under section 35 of the Employment Insurance Regulations (the “Regulations”) and, if so, if the allocation of those earnings was made in accordance with the provisions set out in section 36 of the Regulations.

The law

[10] The provisions with respect to “determination of earnings for benefit purposes” and the “allocation of earnings for benefit purposes” are set out respectively in sections 35 and 36 of the Regulations.

[11] For the “determination of earnings for benefit purposes”, section 35 of the Regulations defines “income” as “. . . any pecuniary or non-pecuniary income that is or will be received by a claimant from an employer or any other person, including a trustee in bankruptcy.” This section also clarifies what income is considered earnings.

[12] Subsection 35(2) of the Regulations states the following:

(2) Subject to the other provisions of this section, the earnings to be taken into account for the purpose of determining whether an interruption of earnings under section 14 has occurred and the amount to be deducted from benefits payable under section 19, subsection 21(3), 22(5), 152.03(3) or 152.04(4) or section 152.18 of the Act, and to be taken into account for the purposes of sections 45 and 46 of the Act, are the entire income of a claimant arising out of any employment . . .

[13] Once this item has been established, section 36 of the Regulations identifies the weeks to which these earnings must be allocated.

[14] The amounts received from an employer are considered earnings and must be allocated unless they are covered by the exceptions set out in subsection 35(7) of the Regulations, or they do not arise from employment.

[15]  As for the “allocation of earnings for benefit purposes”, subsection 36(9) of the Regulations states:

(9) Subject to subsections (10) to (11), all earnings paid or payable to a claimant by reason of a lay-off or separation from an employment shall, regardless of the period in respect of which the earnings are purported to be paid or payable, be allocated to a number of weeks that begins with the week of the lay-off or separation in such a manner that the total earnings of the claimant from that employment are, in each consecutive week except the last, equal to the claimant’s normal weekly earnings from that employment.

Evidence

[16] The evidence in the file is as follows:

1. A record of employment dated November 3, 2014 indicates that the Appellant worked as a “policy writing analyst II” for the Employer, SSQ Société d’Assurance-vie Inc., from May 22, 2012 to October 22, 2014, and he stopped working for that employer for an “other” reason (Code K – Other) (Exhibit GD3-12).
2. An amended or replacement record of employment (serial number of the amended or replacement record: W35855689), dated February 9, 2015, indicates that the Appellant worked as a “policy writing analyst II) for the Employer, SSQ Société d’Assurance-vie Inc., from May 22, 2012 to October 22, 2014, and that he stopped working for that employer for an “other” reason (Code K – Other). The record indicates that the Appellant received pay in lieu of notice of $2,596.20 and severance pay of $12,980.78 (Exhibit GD3-13).
3. On February 16, 2015, the Appellant sent the Commission a copy of the document, “Out‑of-court settlement agreement” (Commission des normes du travail du Québec), signed by the Employer, SSQ Société d’Assurance-vie Inc., and by the Appellant and dated February 4, 2015. This documents contains the following provisions: [translation] “WHEREAS the employee filed a complaint for dismissal without good and sufficient cause . . . under section 124 et seq. of the Act Respecting Labour Standards; WHEREAS the employee filed a complaint of psychological harassment . . . under section 123.6 et seq. of the Act Respecting Labour Standards: WHEREAS the right to reinstatement exists under sections 123.15 and 128 of the Act Respecting Labour Standards; WHEREAS by filing his complaints, the employee wanted to obtain the right to reinstatement in his employment; WHEREAS the employee had already received from the Employer, at the time of the termination of his employment, an amount corresponding to two weeks’ work as severance pay provided for in section 82 of the Act Respecting Labour Standards; WHEREAS after discussion between the parties, the employee relinquishes reinstatement; . . . The employer undertakes to pay the employee, as a loss of employment indemnity, an additional gross amount of $12,980.78, thus $6,490.39, less applicable tax deductions of 20% provincial tax and 10% federal tax. The amount is payable in accordance with the terms and conditions set out herein; . . . The employee undertakes to provide Service Canada with this agreement and to repay any overpayment of employment insurance benefits . . .” (Exhibits GD3-17 and GD3-18).
4. In a document dated May 16, 2015 providing details of the Notice of Debt (DH009), which was reproduced on September 16, 2015, the total amount of the Appellant’s debt was established as $5,024.00 (Exhibit GD3-22).
5. On July 9, 2015, the Employer stated that the sum of $12,980.78 paid to the Appellant represented an indemnity for his loss of employment. It indicated that that sum was not related to the relinquishment of the right to reinstatement in his employment because the Appellant could not resume his position due to incompetence. The Appellant had not achieved the required performance. The Employer explained that it was never a question that the Appellant would be reinstated in his position and that the agreement had been reached by paying the sum of $12,980.78 to compensate him for the loss of his employment. According to the Employer, that amount reached was severance pay. It mentioned that the agreement with the Appellant had been overseen by the Commission des normes du travail du Québec (Exhibit GD3-26).
6. In his Notice of Appeal filed on September 1, 2015, the Appellant provided a copy of the following documents:
   1. “Out-of-court settlement agreement” (Commission des normes du travail du Québec) (Exhibits GD2-6 and GD2-7);
   2. Email from the Appellant  to the Commission des normes du travail mediator, dated January 9, 2015, in which, in particular, the Appellant underscored the importance of being reinstated in his employment (Exhibit GD2-8);
   3. Email from the Commission des normes du travail mediator to the Appellant, dated January 21, 2015, in which he set out the clauses that might be part of the out-of-court settlement agreement (Exhibit GD2-9);
   4. Letter from the Commission (reconsideration decision), dated July 28, 2015 (Exhibits GD2-10 and GD2-11).
7. On September 29, 2015, the Employer sent the Tribunal a copy of the out-of-court settlement agreement (Commission des normes du travail du Québec) reached on February 4, 2015 (Exhibits GD6-1 to GD6-6).

[17] The following evidence was adduced at the hearing:

1. The Appellant reviewed the main elements in the file to demonstrate that the sum he had received from the Employer, SSQ Société d’Assurance-vie Inc., under the out-of-court settlement agreement with it, dated February 4, 2015, does not constitute earnings under the Regulations and should not be allocated by the Commission (Exhibits GD3-17 and GD3-18).
2. He explained that his notice of appeal was related solely to the sum of $12,980.78 that he received from the Employer as a result of the out-of-court settlement agreement reached with the latter. The Appellant indicated that his appeal was related to only part of the global amount of $17,056.79 that was mentioned in the initial decision by the Commission dated May 12, 2015 (Exhibits GD3-20 and GD3-21).

Parties’ arguments

[18] The Appellant presented the following observations and submissions:

1. He explained that he had filed a complaint of dismissal without good and sufficient cause to the Commission des normes du travail du Québec in November 2014. He stated that the mediation process ended in February 2015 with an out-of-court agreement under which he relinquished the right to reinstatement. The Appellant explained that he had been paid an indemnity by his employer in exchange for that relinquishment. He mentioned that the Commission had argued that that amount should not be excluded from his earnings, calculated for the purpose of payment of the employment insurance benefits he had received, between November 2014 and March 2015. According to the Appellant, the indemnity he had received does not constitute earnings for employment insurance purposes for the following reasons:
   1. The settlement reached through the mediation process complies with sections 123.15 and 128 of the Act Respecting Labour Standards, which allows an employee to obtain reinstatement in his employment and/or receive an indemnity. Consequently, the sum obtained does not represent compensation for loss of pay or other benefits arising from his employment, but an amount obtained as compensation in exchange for a right arising from a provincial law;
   2. The Appellant had asked to be reinstated through the grievance he had filed. He indicated that the wording of his complaint, and the correspondence exchanged with the mediator, was explicit in this regard;
   3. The sum had been paid as compensation in exchange for his relinquishment of the right to reinstatement. The wording of the settlement agreement supports the claim that the right to reinstatement exists, that reinstatement was requested, that there was a relinquishment of that right and that the amount paid by the Employer was compensation for the relinquishment of that right to reinstatement (Exhibit GD2-4).
2. The Appellant argued that he had received the sum of $12,980.78 after relinquishing his right to reinstatement. He argued that the legislation was clear in regard to a sum received in exchange for relinquishing the right to reinstatement in his employment and that the decision in his case had not taken that into account. He argued that the sum of $12,980.78 that had been paid to him by his former employer had been incorrectly considered earnings. He explained that that amount, received under an out-of-court agreement in exchange for relinquishing the right to reinstatement, should have been excluded from earnings because it had not been earned through work or paid in consideration of work performed (Exhibits GD3-14 to GD3-16 and GD3-23 to GD3-25 and GD3-27).
3. He explained that the out-of-court settlement agreement he had signed had been interpreted differently by the Commission than he had interpreted it because, in the settlement agreement, it was mentioned that it was a loss of employment indemnity. He argued that the preamble to that document clearly states his right to reinstatement and that he wanted to be reinstated in his employment (Exhibits GD3-17 and GD3-18).
4. The Appellant underscored that, at the beginning of the appeal process he had undertaken, the Commission had been unaware of the contents of the email messages exchanged between him and the representative of the Commission des normes du travail, who had acted as the mediator before the out-of-court settlement agreement had been reached (Exhibits GD2-8 and GD2-9).
5. He mentioned that, in the January 21, 2015 email received from the mediator, the latter had first planned to include in the out-of-court settlement agreement the following wording (preliminary wording): [translation] “The employer undertakes to pay to the employee an amount (possibly consisting of a net amount transferred to an RRSP and a gross amount less applicable tax deductions) for relinquishing reinstatement” (Exhibit GD2- 9). The Appellant pointed out that the discussions with the Commission des normes du travail mediator had focused on this aspect.
6. The Appellant indicated that the wording of this element was different in the final version of the settlement agreement because of a lack of attention on his part, but that he had agreed to sign the final version of this agreement as presented to him. He stated that it was the Employer that had prepared the text of the agreement. He indicated that he was then required to approve the text of that document. The Appellant mentioned that he should have had the term “loss of employment indemnity” corrected (Exhibit GD3-27).
7. He explained that he could have judicialized the process but that it would have taken several more months before the case could have been finalized. According to the Appellant, the Commission des normes du travail mediator persuaded him to stop the proceedings because he had an agreement that was acceptable.
8. The Appellant underscored that the preamble to the agreement specifies that he agreed to relinquish reinstatement in his position after discussion between the parties. He argued that the entire process with the Commission des normes du travail had been oriented toward the goal of reinstatement in his position (Exhibits GD2-8 and GD2-9 and GD3-27).
9. He argued that the facts are there but that the Commission made a strict and overly restrictive interpretation of the wording of the out-of-court settlement agreement reached between him and the Employer without taking into consideration the spirt of that agreement. According to the Appellant, the Commission had used the Employer’s argument that the sum of $12,980.78 that he had received represented an indemnity for the loss of his employment and that the sum had not been related to a relinquishment of the right to reinstatement in his employment. He also argued that if one was to trust in the Employer’s opinion, there was allegedly never a right to reinstatement (Exhibit GD3-26).
10. The Appellant explained that the complaint he had made to Commission des normes du travail regarding a dismissal without good and sufficient cause had merit and that his right to reinstatement had been recognized in the out-of-court settlement agreement that he had reached. He clarified that that was the reason why he had made the complaint to the Commission des normes du travail.

[19] The Respondent (the Commission) presented the following observations and submissions:

1. The Commission explained that, despite the fact that the settlement agreement states that the right to reinstatement exists under sections 123.15 and 128 of the Act respecting Labour Standards (Quebec), that by filing his complaint the Appellant wanted to obtain the right to reinstatement in his employment and that, after discussion between the parties, the Appellant had relinquished his right to reinstatement, and that the sum of $12,980.78 was paid to him as a loss of employment indemnity, that amount could not be related to the relinquishment of the right to reinstatement because the Appellant could not resume his position due to incompetence, having been unable to achieve the performance required to remain employed (Exhibit GD4-3).
2. The Commission determined that the settlement agreement between the parties had been reached by the sum paid to compensate the Appellant for the loss of his employment. It underscored that that settlement agreement stipulates that the Employer undertook to pay the Appellant, as a loss of employment indemnity, an additional sum of $12,980.78 (Exhibit GD4- 3).
3. Based on the facts in the file, it determined that the amounts that the Appellant had received as a loss of employment indemnity constituted earnings under subsection 35(2) of the Regulations. It pointed out that a payment was made to the claimant because of the loss of his employment as a result of a settlement agreement between the parties (Exhibit GD4-3).
4. The Commission considered that the sum of $12,980.78 could not be considered an indemnity for relinquishment of the right to reinstatement because the Appellant could not be reinstated in the position he had held. It argued that the Appellant lost his position due to his incompetence since he did not meet the performance requirements needed to retain his employment. The Commission also argued that payment had been made for the Appellant’s separation from employment, as pay in lieu of notice and vacation pay, which had been allocated, along with the severance pay. It determined that, consequently, and pursuant to subsection 36(9) of the Regulations, the loss of employment indemnity of $12,980.78 had been allocated based on the Appellant’s normal weekly earnings of $1,312.00 beginning on October 19, 2014 (Exhibits GD3-20, GD3-21 and GD4-4).

Analysis

[20] The Federal Court of Appeal (the “Court”) has clearly established the conditions under which a sum paid following a separation from employment may be considered as having been paid as compensation for a right to reinstatement. First, a right to reinstatement must exist under federal law, provincial law, a contract or collective agreement. Second, the claimant must have asked to be reinstated and the settlement agreement must show that the sum was paid as compensation for relinquishment of a right to reinstatement (Canada (AG) v. Nicole Meechan, 2003, FCA 368)

[21] In Plasse (A-693-99), the Court stated:

If a settlement encompasses both an acceptation of lost wages and a renunciation of a right to reinstatement granted by the appropriate authority, only the former constitutes "earnings" and only the value attributable to the former is allocated pursuant to section 57 of the Regulations. It would of course be open to the Commission in any given case to make sure that a purported settlement is not a mere sham to circumvent the unemployment insurance scheme by disguising compensation for lost wages as something else.

[22] The Court has also stated that the right to reinstatement is an employee’s right to resume his or her position following a wrongful dismissal. Unless a payment can be considered compensation for relinquishment of a right to reinstatement, it must be allocated according to the provisions of the Regulations(Canada (AG) v. Warren, 2012 FCA 74).

[23] In that decision (Warren, 2012 FCA 74), the Court stated:

. . . It is common ground that, unless the payment can be characterized as compensation for relinquishment of the right to reinstatement, it is properly allocated under the provisions of the Employment Insurance Act, S.C. 1996, c. 23 (the Act) and the Employment Insurance Regulations, SOR/96-332 (the Regulations). . . . in federal law, the right to reinstatement is an employee’s right to resume his or her position following a wrongful dismissal. In such circumstances, compensation to relinquish the right to reinstatement following a wrongful dismissal does not constitute earnings within the meaning of the Act and the Regulations (Cantin, para. 33). However, wrongful dismissal is a prerequisite to a right to reinstatement.

[24] The Court reaffirmed the principle by which the onus is on the claimant to establish that all or part of the sums received following his dismissal constituted something other than earnings within the meaning of the Act (Bourgeois v. Canada (AG), 2004 FCA 117).

[25] The Court stated the principle by which sums paid with respect to a lay-off or separation from employment constitute earnings under section 35 of the Regulations and must be allocated in keeping with subsection 36(9) of the Regulations (Canada (AG) v. Boucher Dancause, 2010 FCA 270; Canada (AG) v. Cantin, 2008 FCA 192).

[26] It has long been held by this Court that a settlement payment made in respect of an action for wrongful dismissal is "income arising out of .... employment" unless the claimant can demonstrate that due to "special circumstances" some portion of it should be regarded as compensation for some other expense or loss (Canada (AG) v. Radigan, A-567-99).

[27] In Bielich (2005 FCA 363), in which the Commission’s appeal was dismissed, the Court stated:

The Board of Referees heard the claimant and found his explanation credible. Given the evidence before it, it concluded that the release did not represent the agreement between the parties and accepted that the entire settlement amount was attributable to the respondent's renunciation of his right to reinstatement.

[28]  The evidence in the file shows that the Appellant received a sum of $12,980.78 from the Employer, SSQ Société d’Assurance-vie Inc., following an out-of-court settlement agreement reached between it and the said Appellant and dated February 4, 2015 (Exhibits GD3-17 and GD3-18).

[29] This agreement is the result of the Employer’s decision to terminate the Appellant’s employment on October 22, 2014 (Exhibits GD3-12 and GD3-13) and the filing of a complaint by the Appellant with the Commission des normes du travail (Quebec) in November 2014 for a dismissal without good and sufficient cause (Exhibit GD2-4).

[30] The out-of-court settlement agreement specifically provides for the following:

WHEREAS the employee filed a complaint for dismissal without good and sufficient cause . . . under section 124 et seq. of the Act Respecting Labour Standards; WHEREAS the employee filed a complaint of psychological harassment . . . under section 123.6 et seq. of the Act Respecting Labour Standards: WHEREAS the right to reinstatement exists under sections 123.15 and 128 of the Act Respecting Labour Standards; WHEREAS by filing his complaints, the employee wanted to obtain the right to reinstatement in his employment; WHEREAS the employee had already received from the Employer, at the time of the termination of his employment, an amount corresponding to two weeks’ work as severance pay provided for in section 82 of the Act Respecting Labour Standards; WHEREAS after discussion between the parties, the employee relinquishes reinstatement; . . . The employer undertakes to pay the employee, as a loss of employment indemnity, an additional gross amount of $12,980.78, thus $6,490.39, less applicable tax deductions of 20% provincial tax and 10% federal tax. The amount is payable in accordance with the terms and conditions set out herein; . . . The employee undertakes to provide Service Canada with this agreement and to repay any overpayment of employment insurance benefits . . . (Exhibits GD3-17 and GD3-18).

[31] The Tribunal considers that the sum of $12,980.78 received by the Appellant from the Employer does not constitute earnings under section 35 of the Regulations.

[32] In the Tribunal’s opinion, the Appellant had a “right to reinstatement”, he sought to exercise it and he relinquished it in exchange for pecuniary compensation (Meechan, 2003 FCA 368).

[33] The provisions of the out-of-court settlement agreement clearly indicate that the right to reinstatement exists “under federal law, provincial law, a contract or collective agreement” (Meechan, 2003 FCA 368).

[34] That agreement specifically states that such a right exists under sections 123.15 and 128 of the Act Respecting Labour Standards (Quebec). The reference in the agreement to sections 123.15 and 128 of the Act Respecting Labour Standards (Quebec) is very explicit in this regard (Exhibits GD3-17 and GD3-18).

[35] The Appellant also showed that the provisions of the Act Respecting Labour Standards were applicable to his case following the filing of his complaint with the Commission des normes du travail in November 2014 after the Employer’s decision to terminate his employment in October 2014 (Exhibits GD3-12 and GD3-13).

[36] The Tribunal considers that the evidence adduced clearly demonstrates that the Appellant wanted to be reinstated in his position (Meechan, 2003 FCA 368).

[37]  At the hearing, the Appellant explained that the action he took with the Commission des normes du travail had been specifically intended to achieve his reinstatement in the position he had held (Exhibits GD2-8 and GD2-9).

[38] Moreover, the content of the settlement agreement states that, through the filing of his complaints with the Commission des normes du travail, the Appellant “wanted to obtain the right to reinstatement in his employment” (Exhibit GD3-17).

[39] In addition to mentioning that the “right to reinstatement exists” and that the Appellant “wanted to obtain the right to reinstatement in his employment”, the out-of-court settlement agreement indicates that the Employer undertook to pay the Appellant a sum of $12,980.78 as a “loss of employment indemnity” (Exhibit GD3-17).

[40] The Employer argued that the sum of $12,980.78 paid to the Appellant represented an indemnity for the loss of his employment. It explained that that sum was not related to the relinquishing of the Appellant’s right to reinstatement in his position because the Appellant could not resume his position for reasons of incompetence (Exhibit GD3-26).

[41] In the Tribunal’s opinion, in this case, the loss of employment indemnity that the Employer undertook to pay to the Appellant is directly related to the Appellant’s relinquishment of his right to reinstatement in his employment.

[42] The Tribunal considers that the loss of employment indemnity to which the Appellant was entitled under the agreement is inseparable from the relinquishment by the Appellant of his right to reinstatement. It is also the Tribunal’s view that an out-of-court settlement agreement is not normally necessary when an employee agrees to pay a loss of employment indemnity to an employee.

[43] The Tribunal rejects the Commission’s argument that the sum of $12,980.78 was paid to the Appellant as a loss of employment indemnity because that “amount could not be related to relinquishment of the right to reinstatement because the claimant could not resume his position due to incompetence, having been unable to achieve the performance requirements needed to retain his employment” (Exhibit GD4-3).

[44] The Tribunal is of the view that the Commission’s arguments largely disregard the fundamental elements clearly stated in the settlement agreement reached between the Appellant and the Employer, namely, the existence of the right to reinstatement and the desire expressed by the Appellant to be reinstated in his duties.

[45] There is nothing in the settlement agreement indicating that the Appellant could not be reinstated in his position for reasons of incompetence because he could not achieve the performance required by his employer to retain his employment. The Commission reached such a conclusion based solely on a statement made by the Employer several months after the latter had reached an agreement in which it explicitly acknowledged the Appellant’s right to reinstatement in the position he had held.

[46] The Tribunal underscores that the question of the Appellant’s competence, raised a posteriori by the Employer, is not part of the settlement agreement reached between these parties. That agreement indicates that there was no reason to terminate the Appellant’s employment and does demonstrate in any way the latter’s incompetence.

[47] Rather it is the Tribunal’s view that if the Employer recognized, as part of that agreement, that the Appellant had the right to reinstatement in his position, it recognized, by the same token, that the Appellant had the competence necessary to retain his employment. 

[48] It is the Tribunal’s view that the Appellant had the right to reinstatement in his position, that he demonstrate his desire in that regard and that he relinquished that right in exchange for pecuniary compensation (Meechan, 2003 FCA 368).

[49] The Tribunal considers that the sum of $12,980.78 paid to the Appellant can thus “be characterized as compensation for relinquishment of the right to reinstatement” (Warren, 2012 FCA 74).

[50] That sum does not constitute earnings under section 35 of the Regulations.

[51] Accordingly, the allocation of the sum of $12,980.78 received by the Appellant is not justified under sections 35 and 36 of the Regulations.

Conclusion

[52] The appeal is allowed.